John David Sheffield v John Julian Lionel George Sheffield & Ors (2013)

Summary

The contemporaneous documentation did not prove that before the beneficiary of a trust of land declared that he held his interest on trust for his grandson, they had made an arrangement that the grandfather would continue to keep all the income attributable to the gifted interest while he was alive and continue to act in relation to that quarter share as if he were still the owner.

Facts

The claimant (C) claimed that, as a beneficiary of a family trust, he had been entitled to payments of trust income.

In 1968, C's grandfather (J) and grandmother had purchased land containing two farms and residential properties. Under a settlement, they held it as tenants in common, J holding a quarter share. In 1983, J executed a scheme consisting of a series of interrelated transactions, including a declaration of trust under which he held his quarter-share beneficial interest in the land on trust for C. In 2005, C commenced proceedings and claimed that the declaration should be held to be an assignment but if it was a declaration of trust he was owed, among other things, a quarter of the trust income since 1983. However, the defendants (D), who were the executors of J's will and trustees of the 1968 settlement, maintained that the 1983 scheme was subject to an informal antecedent arrangement that J would "gift" his quarter beneficial interest under the 1968 settlement to C but would continue to keep all the income attributable to the gifted interest while he was alive and continue to act in relation to that quarter share as if he were still the owner. Thus they argued the arrangement rendered the declaration of trust a sham so C did not become entitled to a quarter of the income and capital receipts of the 1968 settlement until J's death in 2008, as had been devised in J's will. The court was therefore required to determine whether: (i) there had been an arrangement; (ii) the 1983 declaration made J a sub-trustee to whom the trustees were to account for the trust income, so that C's claims for an account of income actually received could only be advanced against J's estate and not against the trustees; (iii) there had been a breach of trust in not paying a quarter of the trust income to C or whether D could rely on the defences of estoppel, limitation, laches and acquiescence, and the Trustee Act 1925 s.61.

Held

(1) The evidential burden rested on D to establish the existence of the arrangement. The rival contentions had to be tested against the background known to the parties and the contents of the contemporaneous documentation. One of the background facts was that J needed the income from the land to live on. However, the contemporaneous documentation in the form of letters did not prove the existence of the arrangement. It followed that the 1983 declaration of trust took effect in accordance with its terms (see paras 35-77 of judgment). (2) Contrary to C's alternative argument, had it been J's intention to assign, his solicitors would have drafted an assignment. Rather J had disposed of the equitable interest by declaring himself to be a trustee of it in favour of C. Whilst the trustees of the 1968 settlement could have paid C rather than J if otherwise C was entitled to payment, they were not obliged to do so, Nelson v Greening & Sykes (Builders) Ltd [2007] EWCA Civ 1358, [2008] 1 E.G.L.R. 59 applied. Therefore, if quarter of the sums received by J after the 1983 declaration were sums that he should have accounted for to C, then the failure to pay was a breach of trust on his part not on the part of the trustees of the 1968 settlement (paras 80, 85-86). (3) If there was any net sum left of the trust income after meeting expenses, the failure to account to C for that sum would be a plain breach of trust. As the alleged arrangement had not been proved, D could not argue that C was estopped from claiming his strict legal rights under the 1983 declaration because of his knowledge of what was intended. Furthermore, it had to be shown that it would be unconscionable for the allegedly estopped party to be permitted to rely on his strict legal rights, Gillett v Holt [2001] Ch. 210 applied. However, it would not be unconscionable to allow C to assert his strict legal right to receive the trust income when he had not known he had any entitlement to it and his grandfather and father both knew the former was not entitled to it but did not advise C that he was thus entitled. Nor could s.61 of the 1925 Act assist as J had not acted reasonably in the circumstances or ought fairly to be excused. Nor was a claim that J had been in wrongful receipt of the income after the 1983 declaration statute-barred under the Limitation Act 1980 s.21(1)(b). The laches defence also failed because it was not inequitable for C to proceed with his claims even though D had been deprived by J's death of obtaining any statement from him. Lastly, the defence of acquiescence was unsustainable because C had been ignorant of his rights to income arising from the 1983 declaration until late 2004 when a copy of the declaration was sent to his solicitors, and he asserted his claim sufficiently promptly thereafter (paras 90, 95-99, 117, 121).